Current Account Deficit Swells by $1.4 Billion in May

The current account deficit (CAD) remained out of control despite various measures of the new government and the banking regulator as it posted a huge deficit of $1.4 billion in May as against $0.6 billion reported a month earlier in April.

While overall imports fell compared to April, a decline in remittances and exports on account of Eid holidays contributed to this rise, the State Bank of Pakistan (SBP) commented. Moreover, excluding in kind imports that are fully financed and thus do not undermine the sustainability of the CAD, the deficit was more modest at $1 billion, it further said.

According to the data released by the State Bank of Pakistan (SBP), the overall current account deficit surged to $15.1 billion in the eleven months of the current financial year 2021-22 as compared to the deficit of $1.1 billion reported in the same period of the last financial year 2020-21.

Commenting on the development, economic analyst A. A. H Soomro told ProPakistani,

The current account deficit is in the red zone and it is no wonder that the country has a PKR crisis. The textile exports are expected to slow down as cotton prices fall and government reverses energy subsidies.

“Similarly, 3 million tonnes of wheat imports would swell imports in the short term. However, the slowdown is already happening and it would be visible in a few months. Nonetheless, the Pakistani Rupee wouldn’t plunge further. The worst is priced in, the IMF deal and bilateral loans should nudge the rupee back to less than 200,” he added.

The trade deficit of commodities and services surged to a record level of $40 billion during the said period as compared to the $27 billion trade deficit of commodities and services reported in the same period of the last year.

Imports were relatively higher due to the higher prices of energy and depreciation of the Rupee against the Dollar. It stood at $65.3 billion for commodities and $10.7 billion for services during the same period.

The exports of the country surged to $29.3 billion with remittance inflows also surged to an all-time high level of $28.4 billion during July to May. Interestingly, export receipts and inflows through remittances could not offset the impact of high imports on the trade deficit.

The banking regulator took very strict measures to curb the imports through the introduction of tough monitoring and approval stages for imports of various goods, luxury, finished, and raw materials.

These restrictions could be reflected in the next report of the current account next year.